Roth Ira For College

The roth ira is similar to a 529 account a tax advantaged education savings account in that it s a tax deferred account and can be used as a college savings vehicle. If you are using a roth to save for college for your children make sure you re also saving for yourself. Although a roth ira may offer some tax advantages distributions from a roth ira can hurt eligibility for need based financial aid.

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A roth ira can be used to pay for college but there are some advantages and disadvantages when compared with using a 529 college savings plan to pay for college.

Roth ira for college. When you need money to pay for college expenses tapping your roth ira is one option you might consider. 529 savings plans and roth iras are both tax advantaged options to save for college. Though it may not be the most conventional way to plan for college a roth ira can be instrumental in helping you reach your college savings goals. While a roth ira can be an excellent college savings vehicle contributions need to be balanced with your own retirement savings.

The basis for this idea is that you can avoid the 10 early withdrawal penalty for an early ira withdrawal if you use the funds for qualified college expenses. Retirement is filled with uncertainty we don t know how long we. But that flexibility can also create some confusion. It s true that you can use a roth ira for college expenses but it s better suited as a retirement savings vehicle.

A lot of buzz has been going around about using an ira especially a roth ira as an alternative type of college savings account. Unlike a 529 plan a roth ira allows people who have funds left over after withdrawing for college expenses to convert those dollars to retirement income with no tax consequences or penalties. For 2020 and 2019 you can contribute up to 6 000 a year 7 000 if you re age 50 or older to a roth ira. While a roth ira is designed to help you save for retirement on a tax advantaged basis it s possible to use money in your account to fund college costs for yourself your spouse or your children.

One of the biggest benefits of using a roth ira for college savings is that if you don t end up needing the money for college you can simply keep it in there and use it later for retirement.